Vendors challenge European levies on PCs to compensate copyright holders

The European Union wants desperately to transform its 15 member nations into an "information society" capable of not just competing in, but leading the world economy. But manufacturers of computers, cellular telephones and other electronic equipment say that goal will be impossible to achieve unless the EUs copyright laws are changed.
At the core of the debate are "collection societies," powerful private-sector groups authorized by law in most European nations to impose levies on equipment that can be used to copy commercial products. The fees raised by the societies are disbursed among copyright holders as compensation for unauthorized copying of their works. The laws were originally intended to apply to copy machines and tape recorders, but collection societies in several nations have attempted recently to use the laws to impose levies on computers. While the initial focus is on personal computers, whether sold to consumers or businesses, industry officials worry levies could be extended to other types of computers if the collection societies succeed in their initial targets.

The collection societies argue that scanners, CD burners and the Internet have transformed computers and computer-based devices into the worlds most efficient copy machines. While equipment makers dont argue with that assertion, they say levies on hardware, which in Germany alone could range from $34 for PCs to as much as $216 for the most powerful scanners, are bound to discourage widespread purchases of the tools necessary for massive numbers of Europeans to connect to the Internet.

In short, says Townsend Feehan, secretary general of the European Association of Consumer Electronics Manufacturers, Europe may be "shooting itself in the foot" with copyright laws that hamper equipment sales. Industry officials say the levies will force them to either charge more for their products or absorb the costs, further cutting already slim profit margins.
The collection societies counter that until technology has been designed and implemented to prevent unauthorized reproductions of copyrighted works, levies on equipment will be necessary to ensure that owners of intellectual property get their due.
Germany has so far been the most aggressive in imposing levies on computer-based equipment. But other nations, notably Austria, France and Greece, are considering similar levies.
While equipment makers say publicly that they see no imminent danger of the U.S. following Europes lead on levies, some company representatives admit privately that they are worried about the precedent.
Vendors Fight Back
A broad coalition of technology companies and associations is fighting back by launching an effort to "freeze and phase out" what they see as Europes outdated levy system. A primary target is a copyright directive passed earlier this year by the EU aimed at extending copyright protection to digital works and harmonizing copyright laws throughout the EU. Like all EU directives, it requires that each member nation enact its own legislation, in this case, over the next 18 months.
Collection societies throughout Europe have been collecting fees on video and audiotapes and other blank media for several years on behalf of copyright holders. But with the growth of new digital technologies that allow perfect copies to be made and stored on everything from hard drives and CDs to memory chips, collection societies have pushed to extend levies on analog products into the digital market.
Existing laws in several nations and, more broadly, the EUs copyright directive provide the authority to impose new levies, the collection societies say.
The German collection societies sounded the first alarms among computer makers last year by announcing they would impose levies on PCs.
"PCs and other IT [information technology] equipment have led to a new dimension of private copying in terms of both quality and quantity. The authors therefore have a legitimate right to compensation for this massive private copying of their intellectual property," Reinhold Kreile, president of GEMA, a Germany collection society representing musicians, said last year, in calling for levies on computers.
To establish a legal footing under current laws, they have been suing individual manufacturers. If the suits are successful, the societies are expected to impose levies on all manufacturers. A German court recently ordered Hewlett-Packard to pay levies on all CD burners it sold in Germany over the last three years. The company says it will appeal the decision. Fujitsu Siemens Computers is also in a court battle with two German collection societies over PC levies.
Manufacturers met with German officials this month, but failed to negotiate a compromise.
France has already begun to impose fees on recordable CDs, recordable DVDs and MP3 players. And despite initial criticism of the idea, industry officials predict that France will eventually follow Germany by targeting PCs as well. Germany also imposes levies on blank digital media, but not MP3 players yet.
Collection societies in France are "looking at enlarging the scope of the equipment that could be subject to copyright" levies, says Stephane Ducable, director of international government and regulatory affairs at Frances Alcatel.
Because Germany and France are among the biggest European markets for PCs, their positions on levies carry great weight. Germany led Europe in PC sales in 2000, followed by Britain and France, according to the European Information Technology Observatory, an industry group that collects data on IT markets. Britain, Ireland and Luxembourg are the only European nations that do not impose levies to compensate copyright holders.
"A lot of people see it as a solution that makes sense," says Michael Geist, a University of Ottawa law professor.
While copyright holders have not taken a public role in the debate, Francine Cunningham, a spokeswoman for the International Federation of the Phonographic Industry, which represents record companies around the world, says the groups members prefer to use technology that prevents unauthorized digital copying.
Even so, Cunningham adds: "Whether levies will be needed in the future depends on the flexibility given to rights holders to use those technical measures."
Yet, some observers say the copyright holders interests are not necessarily in line with those of the collection societies.
"Some rights holders are not too happy with the levy system," says Bernt Hugenholtz, a University of Amsterdam law professor. "It legitimizes private copying."
Equipment makers charge that the collection societies are only targeting hardware products because they need new sources of revenue to legitimize their existence: If technological protections and digital rights management systems eventually provide copyright holders with the control they are seeking over their works, there will be less need for collection societies.
"They see the writing on the wall," Feehan says in reference to the consumer electronics manufacturers group. "They see that technology will make them completely redundant."
Feehan and others also say that the levies suggested by some of the collection societies are arbitrary and not based on sound cost estimates.
But Ferdinand Melichar, managing director of VG Wort, the German collection society for authors and publishers, says his groups levy proposal  80 deutsche marks, or about $34 per PC  is based on a study examining the potential use of PCs for copying. Even so, Melichar says his group had already told computer makers that it would agree to a lower figure.
But technology companies say any increase in the cost of their products in Europe would further hamper sales at a time when their industry is already in a dangerous slump.
"With margins under greater and greater pressure, it poses a serious threat to the profitability of companies," says Thomas Vinje, a partner of the Brussels, Belgium, office of the Morrison & Foerster law firm, which represents Fujitsu Siemens.
Thats Not All
Equipment makers also say they fear this is only the beginning  that collection societies will eventually target mobile phones and any other product that potentially could be used to record copyrighted works. So, a broad industry coalition including computer manufacturers, cell phone makers and even software companies is working to battle collection societies across Europe.
"We have been following the discussions very closely," says Jyrki Nikula, Nokias legal counsel for intellectual property rights. "On a general level, we as a company dont see copyright levies . . . as a fair way of balancing things."
Equipment makers argue that if copyright holders build technological protections into their digital products, levies are not needed. Industry officials lobbied to have language included in the EUs directive that would have echoed a U.S. law banning technology designed to circumvent digital protection schemes, but failed. The best they could get was vague language stating that member states need to consider whether technological protections are being used when deciding whether to impose levies. Still, industry representatives say they believe this gives them an opening to attack the levies as each EU member state moves to enact national legislation implementing the directive.
Industry officials acknowledge they face an uphill battle, given the power that collection societies hold in Germany and France. Vinje, Fujitsu Siemens lawyer, says German collection societies will play a key role in developing legislation implementing the EU copyright directive. And, Hugenholtz, the Dutch law professor, says that instead of providing equipment makers with a means to fight levies, the copyright directive could have the opposite effect. Given that the directive calls for compensating copyright holders for private copies, Hugenholtz and others predict that collection societies will push EU member states to impose new levies.
Outside Europe, Canada has imposed levies on recordable CDs. Geist, the Ottawa law professor, says that while there has been some discussion of extending these levies to PCs and MP3 players, no formal proposal has been developed.
Yet a handful of technology industry officials say, on condition of anonymity, that if the European collection societies succeed in their quest for new levies, similar groups in other parts of the world would almost certainly be emboldened to follow suit.
While Geist says that he does not expect the U.S. to embrace such levies in the short term, the concept is "not off the table," if levies come to be seen as the only way for copyright holders to get paid.